Mondi performance and price hikes overcome economic headwinds

08-May-2011 - Last updated on 09-May-2011 at 10:39 GMT

Mondi said its underlying operating profit of €187m in Q1 2011 showed its performance continued to improve but acknowledged that rising input costs and the weakening US dollar were hitting margins.

The international packaging and paper group said the return over the last three months was above each of the last two quarters and “well in excess” of the same period last year.

Input costs high, returns higher

But the company highlighted soaring overheads as a concern, as inputs remained at or near 2010 highs.

“Rising input costs are impacting on margins and the recent weakening of the US dollar is a concern to the extent it may inhibit the ability to pass on further cost increases,” it said in a statement.

Benchmark recovered fibre costs have increased 18 per cent in the three months to 31 March 2011, while average wood prices have risen 10 per cent over the period.

Energy and other raw material input costs have also increased during the first quarter, mainly on the back of rising crude oil prices, said Mondi.

However, CEO David Hathorn said that price rises introduced by the firm and solid performance had more than compensated for the economic headwinds.

"Price increases have been realised across all major products in the first quarter of 2011,” he added. “Coupled with sales volume increases across all businesses on a like for like basis, this has more than offset the ongoing cost pressures being experienced across most business segments.”

Segment performance

In its European corrugated business, underlying operating profit had climbed, both year-on-year and compared to the end of last year, thanks to the improved volumes from its newly revamped Polish facility at Swiecie.

Average benchmark containerboard price increases since Q4 2010 s were largely offset by ongoing input fibre cost pressures. Mondi boosted prices around €60 per tonne for European recycled containerboard in response to rising recycled fibre costs.

In the Bags & Coatings business, underlying operating profit was up significantly mainly due to the improvement in performance in the kraft paper operations.

Kraft paper prices were up inQ1, with further price increases of 7-12 per cent announced to take effect during April 2011, on the back of rising input costs and continued good demand.

Mondi said it was “confidant of making further progress in 2011”.